Saturday, September 12, 2009

Economic Revolutions and General Purpose Technologies

Commenting on Gegory Clark’s work on the impact of innovations on aggregate growth during the industrial revolution (“The Secret History of the Industrial Revolution”, Working Paper, University of California at Davis, October 2001) in which he shows that it crucially depends on such accidental factors such as the size of the sector affected and the price elasticity of demand, Brad de Long points to the fact that “even extraordinary rates of invention and innovation in any one sector have a limited impact on overall economic growth. (…) in a sector with a healthy 10% expenditure share, not subject to satiation, (…) a thousand-fold multiplication of productivity in the sector leads to a mere doubling of aggregate wealth.

To truly modern economic growth – not just one doubling of wealth but repeated, ongoing doubling – no narrowly-focused set of inventions will suffice. You need broad-based economic growth produced by constantly revolutionizing technologies in most of not all of the economy.” (“Leading Sector Technology and Aggregate Economic Growth: A Finger Exercice”, De Long’s blog, September 7, 2009).

It means, I would like to add, that only “General Purpose Technologies” (GPT) can bring about an economic revolution. It was the case of electricity and of gas powered engines in the 1920s, and it is of course the case of IT today.

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About Me

As a professor of economics, my main specialization fields are in the theory and strategy of the firm, and the theory and applications of public choice (political economy).
I also do consulting work in these fields.
For more information on my work go to my homepage: http://jeanjacques.rosa.pagesperso-orange.fr/
and my SSRN author page: http://ssrn.com/author=471576.
My e-mail has changed: jj.rosa@orange.fr